Now that they have returned from two weeks in Copenhagen at the Climate Change Conference where they served as delegates from the Environmental Markets Association, Reed Smith lawyers Lawrence Demase and Jennifer Smokelin reflect on what transpired and offer some advice regarding what regulated entities should do next.
In what was likely the biggest international environmental event of 2009, the United Nations climate conference occurred December 7-18 in Copenhagen, Denmark. Technically, the climate conference was the 15th of its kind and is properly known as Conference of the Parties, or COP15, under the United Nations Framework Convention on Climate Change (UNFCCC). What was the COP15 outcome? In simple terms: no binding treaty, and a guaranteed future of more protracted climate talks. This does not mean that international GHG regulation is at a standstill. The Kyoto Protocol is still valid until 2012, and signatories have GHG reduction obligations. The European Union's Emission Trading System (EU-ETS) is still viable. And it is not just internationally that we need to look for GHG regulation. It was clear from listening to the Obama administration's representatives [from Administrator Lisa Jackson (U.S. Environmental Protection Agency) to Secretary Ken Salazar (Department of Interior) to Secretary Gary Locke (Department of Commerce) to Secretary Steven Chu (Department of Energy)] that the U.S. supports GHG regulation based both on international leadership grounds and for as a means of growing our domestic economy. It is also evident that manufacturing and petro-fuel-based special interests aside, the Obama Administration views reinventing the energy sector as the economic catalyst to catapult our nation into another economic boom. It is realistic to conclude that despite the lack of a firm deadline and details in the Copenhagen Accord, the current U.S. administration will continue to push to reinvent the domestic Energy Sector and move to a carbon-constrained economy, if for no reason other than economic stimulus. Do not let the lack of a firm international agreement lull you into feeling GHG regulation is not going to occur in this country near-term.
Expect the new carbon-constrained domestic economy to be regulated on two levels. We expect the transportation sector to be regulated more by EPA and the energy sector more by Congress (subject to typical agency implementation regulations). The industrial sector is a toss-up, with EPA willing to give Congress some time (2010), but if Congress fails to act quickly, EPA will step in. As it stands, EPA now requires the reporting of GHG emissions. The new program, which began January 1, 2010, will apply to approximately 10,000 facilities and cover approximately 85 percent of all GHG emissions in the United States. Initial reports, covering emissions during 2010, are due March 31, 2011.
On a state level, about half of the states have broad plans aimed at reducing carbon dioxide emissions. Six states – California, Connecticut, Hawaii, Massachusetts, Maryland and New Jersey – have adopted binding caps on GHG emissions. As for regional developments, 10 northeastern states have created a regional cap-and-trade system for emissions from electric power plants, and two other regions of the country are considering similar regional efforts.
How can you best position your GHG-intensive business to minimize compliance costs in a new carbon-constrained economy? Or even position your GHG emission reduction credits to serve as an asset? There are many ideas on that front, but the one focused on here is to make sure you have documented and verified all of the GHG credits to which you are entitled. One group of potential GHG credits that comes to mind after the economic downturn last year are credits available as a result of reduced GHG emissions. Have your facilities reduced GHG emissions in the past year, because of plant idling or reduced production capacity? Have you reduced your carbon footprint measurably and permanently? Or are you beginning to reduce your GHG emissions to improve efficiency? If so, some of these reductions in GHG emissions may be eligible for credits. These credits, which must be properly documented and verified, could potentially be sold or traded on various mandatory and voluntary markets (EU-ETS and/or the Chicago Climate Exchange, for example), or banked for compliance with the inevitable domestic cap-and-trade program. In other words, reducing your GHG emissions may create opportunities – and that's where we can help.